ACCT 485 Lecture Notes - Lecture 16: Basis Of Accounting, Accrual

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chocolatereindeer623

17 Oct 2016

School

Iowa State University

Department

Accounting

Course

ACCT 485

Professor

Murphy John

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Document Summary

If taxpayer does not undertake the new business, expenditures generally not deductible. If taxpayer does undertake the new business, expenditures must be capitalized and amortized over a period of 180 months, beginning in the month in which the business is started. Expense election: example: olivia is a cpa who is considering opening up a sub shop in her neighborhood. As a result she incurs ,000 of business investigation expenses in 2016. She opens the sub shop in november 2016. Because olivia was not originally in the restaurant business but did start the business, she can immediately expense up to ,000 of her business investigation expenses in 2016. The remaining expenses are capitalized and amortized over 180 months, beginning with the month in which the business is started. Therefore, olivia can immediately expense ,000 of the expenses. [,000 (,000 - ,000)] and the rest (,000 - ,000 = ,000) are capitalized and amortized over 180 months.

Related Questions

During 2015, George, a salaried taxpayer, paid the followingtaxes which were not incurred in connection with a trade orbusiness: Federal income tax withheld by employer $1,500; Stateincome tax withheld by employer $1,100; FICA tax withheld byemployer $700; Real property taxes $900; Federal auto gasolinetaxes $300; Federal excise tax on telephone bills $50. What amountcan George claim for 2015 as an itemized deduction for the taxespaid, assuming he elects to deduct state and local incometaxes?

	A.	$1,400
	B.	$1,100
	C.	$1,150
	D.	None are correct
	E.	$2,000

Choose the correct statement:

	A.	If a financial planner becomes certified, then he/she may notdeduct the Certified Financial Planner (CFP) dues because it is notnecessary to be certified in order to engage in the business ofbeing a financial planner.
	B.	If a taxpayer does a lot of business travel, the taxpayer maydeduct the amount paid for an airline club membership.
	C.	None are correct
	D.	Membership dues to a golf club are deductible as long as thereis a business purpose.
	E.	In order to be deductible, dues and subscriptions must berelated to the taxpayerâs occupation.

For 2015, Eugene and Linda had adjusted gross income of $30,000.Additional information for 2015 is as follows: Cash contribution tochurch $1,500; Tuition paid to a parochial school $1,200;Contribution to the American Red Cross $400; Cash contribution to aneedy family $75. What is the maximum amount that they can use as adeduction for charitable contributions for 2015?

	A.	$1,900
	B.	$1,975
	C.	none are correct
	D.	$3,175
	E.	$3,000

For the year ended December 31, 2015, David, a married taxpayerfiling a joint return, reported the following: Investment incomefrom interest $24,000; Investment expenses other than interest$4,000; Interest expense on funds borrowed in 2006 to purchaseinvestment property $70,000. What is the maximum amount that Davidcan deduct in 2015 as investment interest expense?

	A.	$7,000
	B.	$20,000
	C.	None are correct
	D.	$21,000
	E.	$24,000

Barry is a self-employed attorney who travels to New York on abusiness trip during 2015. Barry's expenses were as follows:Airfare $560; Taxis $40; Meals $200; Lodging $350. How much mayBarry deduct as travel expenses for the trip?

	A.	$1,050
	B.	$1,000
	C.	$950
	D.	None are correct
	E.	$0

Christine saw a television advertisement asking for donations ofused vehicles to a charitable foundation and decided to donate herold car. Which of the following statements is correct?

	A.	She can take a deduction greater than the amount for which thecharity actually sells the vehicle.
	B.	She can claim an estimated value for the auto if the charityuses it rather than selling it.
	C.	The charity is not required to provide her with any informationabout what they do with the auto.
	D.	She can take a tax deduction large enough on an after-tax basisto equal the amount she would have received if she sold the cardirectly.

orangemammoth25

home / study / business / accounting / accounting questions andanswers / Carol Is A Single Mother Who Owns A Wholesale Auto PartsDistributorship. The Business Is Organized ... Question: Carol is asingle mother who owns a wholesale auto parts distributorship. Thebusiness is organiz... Carol is a single mother who owns awholesale auto parts distributorship. The business is organized asa sole proprietorship. Her business has advanced, and she can nolonger devote the time necessary to do her own tax return. Becauseshe always has prepared her own return, Carol is familiar with mosttax rules applicable to her business and personal affairs. However,she has come to you for advice with respect to a number of itemsshe paid during the current year. You are to determine whether shecan take a deduction for the expenditures in the current year. A,Carol purchased a small building on March 2 to use as a warehousefor her auto parts inventory. To purchase the building, sheborrowed $180,000 on a 30-year loan and paid $20,000 in additionalcash. Carol also incurred $3,200 in legal and other fees topurchase the building. The bank charged her $3,600 in points(prepaid interest) to obtain the loan. After acquiring thebuilding, Carol spent an additional $25,000 to renovate it for useas a warehouse. The $25,000 included $8,000 for painting. B, Carolhad her office building painted at a cost of $14,000 and paid$6,000 to have it landscaped. She paid for the building renovationin part a and the office building work by borrowing $60,000 onApril 1 at 7% interest. (See part f for details of the interestpayments.) C, On April 1, Carol prepaid a 1-year fire insurancepolicy on her 2 buildings. The policy cost $1,500, and the insurerrequired the prepayment. On September 1, Carol prepaid a $5,000,2-year maintenance contract on the buildings. D, Carol started aself-insured medical reimbursement plan for her employees thisyear. Based on actuarial assumptions, she deposited $13,500 in afund to pay employeesâ medical expenses. Actual payments from thefund totaled $11,200. E, Carol purchased a new automobile costing$32,000. She can document that her business use of the automobilecame to 90% and that her out-of-pocket operating costs totaled$3,600. F, Carol paid the following interest on business-relatedloans: Warehouse $15,300 Office building 4,000 Renovation loan5,400 The renovation loan was for $60,000. Because she spent only$45,000 renovating the new building and painting and landscapingthe old one, she used the additional $15,000 to purchase city ofSeattle bonds with a yield of 6%. G, Carol became active inpolitics and contributed $1,000 to the presidential campaign of anindependent candidate. She made the contribution because shebelieved that, if elected, the candidate would institute policiesbeneficial to her business. The candidate lost the election andimmediately started a grassroots lobbying organization. The purposeof the organization is to keep track of elected officialsâ campaignpromises and report to the public when they vote contrary to theirstated campaign promises. Carol paid $1,600 in dues to join thelobbying organization. H, Carolâs oldest son began college duringthe current year. She paid his tuition and living expenses, a totalof $13,300, out of the companyâs checking account. During thesummer, her son worked for the business, and Carol paid him $4,300,the same amount she paid other college students working during thesummer. Because she consults her son from time to time on theoperation of the business, she thinks that at least some of the$13,300 should be deductible. I, Carol has always itemized herdeductions. This year, her mother and father retired and could nolonger afford the mortgage interest and property taxes on theirhome. Rather than have them sell the house, Carol made the paymentsfor them. They received a statement from their bank indicating thata total of $8,125 in mortgage interest and taxes were paid in thecurrent year. Carol knows that mortgage interest and property taxesare deductible as itemized deductions and would like to add them toher personal interest and property tax payments. J, Because of thesuccess of her business, Carol has received many offers to investin various business ventures. One offer was to establish a chain ofnursing homes in Florida. Carol spent two weeks in Floridaevaluating the prospects of the proposed venture and incurred costsof $2,100. After careful consideration, she decided the venture wastoo risky and decided not to expand into the health-carebusiness.

cyangnat414

92. Carol is a single mother who owns a wholesale auto partsdistributorship. The business
is organized as a sole proprietorship. Her business has advanced,and she can
no longer devote the time necessary to do her own tax return.Because she always
has prepared her own return, Carol is familiar with most tax rulesapplicable to her
business and personal affairs. However, she has come to you foradvice with respect
to a number of items she paid during the current year. You are todetermine
whether she can take a deduction for the expenditures in thecurrent year.
a. Carol purchased a small building on March 2 to use as awarehouse for her
auto parts inventory. To purchase the building, she borrowed$180,000 on a
30-year loan and paid $20,000 in additional cash. Carol alsoincurred $3,200
in legal and other fees to purchase the building. The bank chargedher $3,600
in points (prepaid interest) to obtain the loan. After acquiringthe building,
Carol spent an additional $25,000 to renovate it for use as awarehouse. The
$25,000 included $8,000 for painting.

b. Carol had her office building painted at a cost of $14,000and paid $6,000 to
have it landscaped. She paid for the building renovation in part aand the office
building work by borrowing $60,000 on April 1 at 7% interest. (Seepart f for
details of the interest payments.)
c. On April 1, Carol prepaid a 1-year fire insurance policy on her2 buildings.
The policy cost $1,500, and the insurer required the prepayment. OnSeptember
1, Carol prepaid a $5,000, 2-year maintenance contract on thebuildings.
d. Carol started a self-insured medical reimbursement plan for heremployees this
year. Based on actuarial assumptions, she deposited $13,500 in afund to pay
employeesâ medical expenses. Actual payments from the fund totaled$11,200.
e. Carol purchased a new automobile costing $32,000. She candocument that
her business use of the automobile came to 90% and that herout-of-pocket
operating costs totaled $3,600.
f. Carol paid the following interest on business-relatedloans:
Warehouse $15,300
Office building 4,000
Renovation loan 5,400
The renovation loan was for $60,000. Because she spent only $45,000renovating
the new building and painting and landscaping the old one, sheused
the additional $15,000 to purchase city of Seattle bonds with ayield of 6%.
g. Carol became active in politics and contributed $1,000 to thepresidential
campaign of an independent candidate. She made the contributionbecause
she believed that, if elected, the candidate would institutepolicies beneficial to
her business. The candidate lost the election and immediatelystarted a grassroots
lobbying organization. The purpose of the organization is to keeptrack
of elected officialsâ campaign promises and report to the publicwhen they vote
contrary to their stated campaign promises. Carol paid $1,600 indues to join
the lobbying organization.
h. Carolâs oldest son began college during the current year. Shepaid his tuition
and living expenses, a total of $13,300, out of the companyâschecking account.
During the summer, her son worked for the business, and Carol paidhim
$4,300, the same amount she paid other college students workingduring the
summer. Because she consults her son from time to time on theoperation of
the business, she thinks that at least some of the $13,300 shouldbe deductible.
i. Carol has always itemized her deductions. This year, her motherand father
retired and could no longer afford the mortgage interest andproperty taxes on
their home. Rather than have them sell the house, Carol made thepayments for
them. They received a statement from their bank indicating that atotal of
$8,125 in mortgage interest and taxes were paid in the currentyear. Carol knows
that mortgage interest and property taxes are deductible asitemized deductions
and would like to add them to her personal interest and propertytax payments.
j. Because of the success of her business, Carol has received manyoffers to invest
in various business ventures. One offer was to establish a chain ofnursing
homes in Florida. Carol spent two weeks in Florida evaluating theprospects of
the proposed venture and incurred costs of $2,100. After carefulconsideration,
she decided the venture was too risky and decided not to expandinto the
health-care business.

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ACCT 485 Lecture Notes - Lecture 16: Basis Of Accounting, Accrual

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